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tv   Squawk on the Street  CNBC  October 18, 2012 9:00am-12:00pm EDT

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>> he is at the timkin faircrest steel plant in ohio. did you buy that shopping this weekend? >> i'll tell you, you can get these, but not the way that niemann can tailor them. this is an untailored one. >> jim, you've got a big day ahead all day long. special look at where to invest in america. what's coming up? >> we're going to talk to timkin. obviously, that's where we are. this is a high end precision proprietary steel. talk to american electric power. i'll tell you what's really interesting. we're going to go to chesapeake. this is controversial, but we're going to talk about what it's doing and how it's running. these are kind of soup to nuts. get it out of the ground and ship it to spectra, which is the pipeline company. it then goes to american electric power, and a lot of what you you see here is steel piping that gets it out of the ground with safety and with american technology. >> and then some aubrey
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mcclendon action a little bit this morning. >> indeed. we're going to spend time on a rig that's going to be producing a huge amount of oil and natural gas and natural gas liquids. and we're going to hear aubrey's story about what's going on chesapeake corp. everything about corporate governance and try to blow it out of the water in 2013 if gas can go higher. >> i like that hard hat, jim. see you in it a little bit. meantime, futures this morning respond to go this miss on jobless claims after last week's big and some say suspect beat. yields down on a pretty good auction. eu preparing for a summit today and tomorrow. our road map goes like this. with a slough of telecom news, verizon earnings in line. nokia, narrower than expected loss. and majority stake in clear wire. >> china's gdp down for the second straight quarter. there are signs of a slowdown stabilizing. is it time to get a little more
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constructive on the world's second largest economy? >> morgan stanley results better than expected. we'll help you weigh through the confusing phrase debt valuation adjustment. and look how james goreman is looking good on his pledge to trim com. >> and reports say president obama is ready to veto any fiscal cliff compromise that doesn't include higher taxes for the wealthy. luster or did the likelihood of a deal just go down? >> it's a day full of telecommunications news. sprint has taken over majority share of clearwire. nokia reported better than expected quarterly results as the company gets ready to launch the new lumia smartphones next month. and google has sent out invitations for an october 29th android event where their expected to announce a new nexus smartphone and release a new nexus tablet. and verizon with a jump in third quarter profits brought up by
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wireless subscriptions after the company started selling the iphone. "squawk on the street" we will be joined by verizon chairman and ceo lowell mcadam. hadn't done an interview with him in quite some time. we'll speak about the quarter and about sprint. interesting to note, we'll see clearwire shares down a little this morning on the news about eagle river. that's the macau entity. they bought $100 million in stock. $2.99 is what they paid. perhaps people seeing it as a ceiling. debt is more interesting here. we'll talk more about that later. as i've been reporting, this is still something that sprint does want to consolidate fully, if it can, over the next six to eight months, concomitant with its deal to be acquired 70% by softbank. >> your theory on how this story's going to end? >> i think that sprint's got a
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real dogfight on its hands. if you look at the verizon wireless number, going up against really powerful competitors, they'll be able to use that money to be a national footprint. they'll need clearwire. i think david was right the whole way. they're buying clearwire, all the way up to $2.75, $2.80. it looked like to get the premium didn't require nearly as much money. david n truth, if they surrender the control block to sprint, can't sprint cram the regular common stock shareholders down now? >> they need to negotiate a transaction of some kind, but you're right, jim, the level of complexity is still fairly high. as you and i have talked so often, it's as much, if not more about the debt holders here. they're paying 12% on the debt. imagine what they'd be paying if sprint acquired the company, a lot less. sprint's costs start with a 4 now even though it's not investment grade at this point. >> jim, what do you think
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happened with clear there is wire? is this an idea that was too early that was never going to work? i used clear for six months because i could not get the cable company, time warner, to come to my apartment at a time that was convenient, and i had no internet. this was so easy. i went to the store, bought the box, plugged it in, and in 30 seconds i had internet at a fairly reasonable price. i thought it was brilliant, and the only reason i didn't keep it is, because you had cable, it was so much more competitive to get internet with the cable. did they get the pricing wrong? is it too early? too late? >> i think the answer is we're a big company. there are many tier one cities that clearwire was trying to blanket. there's tier two and tier three cities, and the footprint could never be built out. it costs billions and billions of dollars to blanket the country. it doesn't cost much to be able to be in the big cities. no one can compete against verizon wireless and at&t and be able to have enough transponders
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and enough towers and just a gigantic amount of money. clearwire could never be in that race. sprint couldn't be in that race. sprint was falling short in this next generation. once again, we saw that at&t and verizon were pulling away so quickly, that even though sprint had very, very good performance, sprint had the iphone, sprint could not deliver through this country. >> no. i mean, listen, you see it in the numbers from verizon this morning. the old wire line business not so great, but wireless for verizon, i mean, they added 1.5 million post paid subscribers, jim. 220,000 prepaid. those are big, big numbers. its average revenue per account as opposed to average revenue peruser, it grew 6.5%. big numbers out of verizon on the wireless side. >> also, margins better than expected at 50. you would have thought iphone subsidies, margins down. didn't happen. people still trying to figure
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out why. >> is this new pricing model, the share everything, is that leading to this halo effect where you've got to keep everybody on the same plan? >> i think, michelle, i think that's dead right. michelle, that plan is terrific. what's happening is, again, when you look at sprint's competitive position, sprint has a really good data plan. if you can blanket the country and have the verizon wireless plan, if sprint hadn't gotten this new money, michelle, i've got to tell you. i really think that 18 months from now you would start hearing about sprint falling back again, even as they've made this great recovery. you you needed this to compete with a company like verizon wireless. i can't wait to see at&t's numbers, but we're headed back to a duopoly again. this ended that chance. >> meeting today with some investors, so i'm sure they're laying out or trying to articulate how they're going to go out and compete. we heard it originally on the
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conference call, which i think is great, saying he wants to be a man. >> he is a man. excuse me. he wants to be number one, like all men do. >> as usual, carl has it absolutely correct, every word. >> jim, let's touch on nokia before we change subjects. narrower than expected loss. but the ceo on the call, i think, started to talk about cash burn. he watches it every day. the marketing spend on the lumia running hot. you said the symbol is nok, as in not okay. is that still the case? >> the group that made it possible to be able to beat the headline number was this service book. the systems -- nokia's got a giant system business, but that's not what we want to see doing well. we want to see the hand set business doing well. it's intriguing to watch apple go down again. this is one of those stocks -- if you're an apple bull, you want it down because maybe you can bounce it in a day. there wasn't anything in nokia that threatened apple's
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position. remember we're in a situation. we're going to hear later from mike microsoft. microsoft and nokia are partners. i would like to see nokia's hand sets going up if i'm microsoft. you're not getting what you want to see from this $2 company. >> thanks. new topic. china's economy slowing for a seventh consecutive quarter, growing at 7.4% in q3. that's the slowest rate since the onset of the global economic crisis in early 2009. once again. not coming in as strong as what others expected. it remains to be seen as well, whether or not they're going to be able to shift from a very industrial-based economy to a consumer economy. >> september data, retail sales, industrial production, some of the fixed asset urban investments made it seem like maybe we've reached some sort of short term bottom here. i know michelle's run numbers
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looking at the grid. another side metric not nearly as encouraging, right? >> go ahead, jim. >> look, there's a prevailing thesis, not unlike what's happening in our country, that chi china's just falling off a cliff. the problem is the numbers that we got last night don't fit that negative thesis. there were many signs away from china that are indicating that business that's gotten better. i like to watch the freight. it has been creeping up. i like to watch something like bhp. the stock is knocked down. if china were really bad, bhp would be mid-60s. i like the future prospects even though the past has shown another level of decline. china is doing everything it can to reaccelerate the economy. in order to get that reacceleration, you need to see the other beneath the line numbers we saw last night that were good. i'm growing bullish on china. my charitable trust has been buying the fxi, which is the way to play china. obviously, too many banks in
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that particular etf. the notion that china is going to have a hard landing was taken off the table last night. >> there's a reason people have thought that. if you go back to the wikileaks from 2007, there's a state department menu that shows the vice premier saying, don't even look at the gdp numbers. they're man made. i like to look at new loans, rail freight, and electricity consumption. we can show you charts. we've built them. and they all look pretty horrendous. here's the new loans since 2009 falling. when you look at rail freight, what's been happening. it also looks pretty frightening. freight traffic growth falling right off the cliff in 2012. and power consumption, which we endlessly here ceos talk about, also down. however, there is this growing thought out there you shouldn't be looking at rail freight or at electricity consumption as much as you should have in the past because those are reflective of heavy industrial production, which china is trying to make less a part of the economy, not more.
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so if you look at power production, this is year to date growth last year versus year to date growth this year. industry still growing, but only 3% compared to 12%. services doesn't fall off nearly as much. and residential power consumption growth is actually higher than it was a year ago year to date. so that would bolster the steve laroche's of the world to say it's shifting consumers. thank you to the the group. they crunched a lot of numbers for us. >> when it comes to china, jim, you and i, we don't take opposite sides, but you're more constructive. it's so confusing and so difficult to really analyze given the lack of faith in some numbers and where we should be focused, that it's just hard to know. it is extremely important -- we've said that over and over again -- and i think it's interesting that you you continue to be a bit more constructive in terms of where we are perhaps it being a bottom. i don't want to put words in your mouth. >> that's right. i had been thinking, when are people going to lower expectations about what china
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can do? they've now lowered them. i think we're going to begin to see the fact that the communist party, which is indeed totally in control, was far more worried about inflation than it should have been. i think they break -- they just really took their economy much slower. they just kind of -- they can move the needle, so to speak. i think they're moving it back now. i totally agree it's not industrial. it's going to be led by consumption. don't forget, there is still this industrial revolution going on china, where people are living from the hinterlands and coming to the cities. so that housing market, unlike in spain, unlike in ireland, can actually be filled by people because there are people moving to the cities. i am more constructive on china. i do believe that we're seeing a trough in the decline right now. >> interesting. hang seng is up eight straight days. the highest level since march. morgan stanley beating expectations. the wall street firm reporting earnings of 28 cents a share, 4
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cents ahead. estimate, of course, we've got to work our way through xdva, which for those who aren't familiar. >> the cost of them buying back their debt. >> debt valuation adjustment, dva. >> it becomes more expensive as it gets -- it becomes less expensive the worse things are, the more their spreads widen. their spreads have narrowed. thankfully, we're going to be getting rid of this soon because it really has made it very difficult to do apples to apples comparison. some analysts include it. some don't. investors, some do, some don't. when you get down to it, in terms of morgan stanley, fixed income currency and commodities, which did not have a good performance last quarter, had a far better performance this quarter. that seems to be what the market is keying off of since it seems to be up 1% to 2%. we'll see where it opens. m&a not great, but what do you expect given the environment? underwriting is still okay. they're talking about a 6-ish
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percent return on equity. which is just wow, right? >> is it ever going to be what it ever was before? that's the whole point of dodd-frank, right? to never let that happen again. >> it's never going to be the same given capitals, leverage, or leverage rates what they were before. it certainly could be higher than 6%. could it be 12% or 13%? that's a lot to ask for, jim. >> the steel plant probably gets a better return than morgan stanley. they're not levered. they're doing business. timken may be a better story. morgan stanley still not as good as the single best quarter we saw from any bank, which remains citigroup. no accounting for ceos. he had to go. pandit had to go. it was a terrible quarter. happened to be the best banking quarter, but that's okay because we fulfilled his usefulness.
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time to move on to someone who's going to deliver not as good of a quarter. >> they keep bringing up this four box of the four of us, but with you in that orange, twitter is ablaze this morning about how no one can carry off orange like you. somebody wants to know if you're going hunting after the show. >> or you could be herme's front man. >> i am a big second amendment believer and have hunted. i'm still convinced that's a good thing provided it's not rare game. today is a chesapeake day, american electric power, timken day. these companies may all have a better return in the future than morgan stanley. >> jim, we're going to take a quick break. when we come back, the president drawing a line in the sand over the fiscal cliff. we've got details on that. and verizon's earnings got a boost from wireless. where else can they look for strength? lowell mcadam, the ceo, joins us for an exclusive interview at 11:30 a.m. eastern time.
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so it appears president obama is coming into the fray over the fiscal cliff. the obama administration says president is prepared to veto legislation that blocks tax hikes and spending cuts scheduled to go into effect at the end of the year unless republicans bow to his demand to raise taxes on the wealthy. so you think he really means
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this, or is this all political postures before the election? >> who knows? at this point, there's nothing but posturing. >> right. i mean, this can't really get solved through the election. >> if you you look at negotiating positions and look at leverage, you might say he has the better hand. if you do nothing, you get sequestration and get all the bush tax cuts expiring. it's $5 trillion. people worry about the deficit. it will help a lot. $5 trillion in cuts and tax increases. >> unless it brings in even less growth. >> that's why we refer to it as a cliff even though perhaps it's more likely to be a slope because it doesn't happen all at once. but it's interesting. i don't know. >> i think what's strange, jim. i thought politically the calculus right now was to prove you could bring consensus. you were a deal maker. you could not block the deal that you don't like. >> right. look, i was surprised -- of course, why i donned my jim cramer hat. fiscal cliff headed toward people doing pretty well.
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this was the kind of thing that i think all of us feel. you've goaltend to be k you've got to be kidding me. is this really the time to talk about doing the huey long thing, soak the rich. i think the rich can handle it. the point is you've got to get a deal. the rich and the poor without a deal do terribly. look, if we had a deal and then you want to raise taxes, i think that's terrific because the stock market is going to go up, everybody is going to make more money. this is the cart before the horse. a deal is what we need, not ideology. >> the outcome, i think, depends too on how it's framed by the other side. okay, you raised taxes on the rich, and you're not even close to solving the deficit problem in any way, shape, or form. it's really on the spending side that you've really got to tackle it. >> although, if everything just stays as is, you get the trillion -- >> you need a deal, though. >> you get the huge cuts in defense spending, don't forget. you do get the huge cuts in spending. >> over ten years, but ultimately, you've got to deal with medicare particularly. >> no doubt.
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$5 trillion over ten years helps, except that it could force us into a recession. >> i like the helmet too, jim. nice little homage to what hanes might have done. >> if obama is taking my taxes up, i can handle it. i'd just like a little protection. >> like mark did on bad days going back a few years. >> when we come back, cramer is an ohio state of mind, taking you into the profits. a special edition of what we're calling his mad frack is coming up. and then an interview with loews hotel chairman john tisch trying to lure travelers to this country. and 1:30 away from the opening bell. do not go away. duff & phelps finds the sweet spot that powers sound decisions. duff & phelps financial advisory and investment banking services.
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jim cramer can go anywhere in the world, but he can still do the mad dash. this time from ohio. jim, you're looking at a couple of names. let's start with travelers. i'm looking for the news. what do you see? >> pricing is going up in the insurance business. mr. fishman, jay fishman delivers an amazing quarter. this is a remarkable beat. it's one of the cleanest beats i've seen, better than expected earnings, and i've got to tell you, carl, this company is a conservative company. and when things finally started turning around, they're getting rates up for everything from autos -- look, commercial, industrial, everything that's involving your bill is going higher in insurance. >> that's an amazing looking chart. one big reason the dow has done as well as it has so far this year. ethan allen, really quick, you
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said the quarter was good? >> look, this is the controversy we have, the dichotomy. ethan allen's quarter was amazing. they delivered a terrific one. this is obviously furniture. now, a lot of it is because what they've done, they've done a restructuring that makes it so their business is much better. why is ethan allen doing so well if the employment claims are so bad? that is really the issue. >> opening bell in just a moment. do not go away. sleep train's best rest event is ending soon. don't miss your chance to get sleep train's very best mattresses at the guaranteed lowest price. plus, pay no interest for 3 years on beautyrest black, stearns & foster, serta icomfort, even tempur-pedic. and rest even better with sleep train's risk-free 100-day money back guarantee. but the best rest event ends soon at sleep train. superior service best selection,
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and his new boss told him two things -- cook what you love, and save your money. joe doesn't know it yet, but he'll work his way up from busser to waiter to chef before opening a restaurant specializing in fish and game from the great northwest. he'll start investing early, he'll find some good people to help guide him, and he'll set money aside from his first day of work to his last,
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which isn't rocket science. it's just common sense. from td ameritrade. dow begins the morning just about 53 points from that 2007 high. probably would have gotten there already had it not been for ibm yesterday. it is up four straight. it has closed near the highs for the third straight day. over here at the big board, luxford holdings, maker of chemicals and gases. holding its opening over there. straight to mary thompson, breaking news at headquarters regarding morgan stanley. >> just got off the phone with
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ruth bore ell, the ceo. holding better than expected revenue once you exclude dva. she did want to point out that pretax margins, ex-dva, close to high. they're close to reading the mid-teen target by mid 2013. and targets reached in june, point to go strong performance in its fixed income unit. addressing the fiscal cliff, it is impacting m&a, but on the trading desk, the expectation is it will be resolved before it actually kicks in. it's not impacting trading. again, holding back on m&a. and the company continues to see low levels of activity in europe though she says the recent actions taken by the ecb should help somewhat is possibly could be a pickup there. lastly, not noted in the press release were the levels of basel
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iii capital. they are north of 9%, up from just under 8.5% in the quarter. i'll bring any more highlights of the call to you. carl, back to you. >> guys, interesting color coming out of the firm. added to everything we've learned this week from goldman and last week from jp morgan and we will. >> it's been a mixed bag. for morgan stanley, in order to gain the confidence of investors, it's been so whipsawed, one quarter decent, the next quarter not. they need to put a few quarters together where they show consistency. a lot of that has to do with fixed income, where they did suffer from the moody's downgrad downgrades, but they seem to have come back. if they can do that again and again, they can win the backing of shareholders for more than 20 minutes. >> it's an adjustment thing where they have to buy back their debt and depending on the fluctuation in the price, when it gets better, it's actually worse. that's the holdover from the financial crisis, that's the basic idea? and it goes away in a couple. >> they've been petitioning the
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accounting profession, the rule, the standard bearers on the rules to say enough of this. it is going -- i think there's an agreement in place potentially to have it go away fairly soon. >> it's so counterintuitive, when the price of your debt gets better, it hurts your bottom line. >> they're not buying back the debt. it's simply -- >> an accounting thing. >> exactexactly. it makes for very confusing earnings season. wells fargo, not as good as people would anticipate. citigroup was pretty good. goldman was fine, not bad at all. morgan stanley, pretty good. we've had it kind of all over the map. >> jim, i don't know how you do it. i see you tweeting, answering questions about ms even as you're on the air. >> there's several mes here. the guy over there, he's got the regular. >> we knew that already. >> right, there's several of me. i want to agree with what david is saying. there's a good quarter at morgan stanley. also, remember, if citigroup got
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taken, or pantsed, as we say in our factory, i would believe that morgan stanley is the beneficiary of smith barney. it's the model. i remember when you thought these guys could blow away the numbers, just by flipping the switch, but it looks like the government turned the switch off. >> don't you think the government would be pleased by that? this is what they intended. >> oh, yeah, the government is thrilled, which means there's much less risk. these companies -- when lehman blew up, david, what was the ratio when lehman blew up versus what they are leverage ratio w 30, close to 40. >> fannie and freddie was 90. >> their balance sheet was leveraged at least 30 times their capital. >> those days are over. >> those days are far over. we're talking closer to 12, 13, 14, somewhere in there, which makes a lot more sense. it's p just dodd-frank. it is also basel iii. that is very important, even more important, in terms of simple capital requirements they're already getting in line
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for, adjusted for, and it makes profitability harder to come by. you can't get the same returns when you have to hold a lot more capital against these businesses. but that being said, it doesn't mean they can't get back to 12%, 13% roes. >> morgan stanley, like the other companies in the financials, their book value, their tangible book value is well in excess of where the stock is, which i think is a recognition that people just don't believe that there's a core business that's as good as it used to be. the assets go out the door every morning from the elevator, of course. i think that the catch-up that needs to be made is either tangible book has to be written down to some level the companies are going to say is not true, or the investors have to say, okay, enough, maybe tangible book is a good indicator. . i don't know what's going to happen, but this disparity between the tangible book and the actual is terrible, and it's got to end one day. >> it will be resolved. >> finally, jim, i see morgan stanley talking about coach. it's one of the big gainers
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today. is luxury going to ride this rethink of china as we get into the session? >> well, i mean, we may not eat as many handbags as we were obviously eating in kentucky fried chicken over in china. here's what i think with coach. i think coach screwed up. i think its execution is bad. when you git oget off the desk with apparel, they say that frankfurt took his eye off the ball, maybe not focused enough on china as he was in the united states. if he solves that problem, coach will be at 60 in a nanosecond. >> coach, the third biggest gainer with the markets relatively flat. >> is there overall risk with coach in the luxury category? the more pervasive and ubiquitous they get, the less the high end eventually wants to own them. it's a very tough ride for retailers. the minute everybody owns them, nobody wants them anymore. we've seen that with brand after brand after brand. at what point do you worry about that with coach? >> it's a groucho marx
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situation. you don't want to be a member of a club that lets you in. but remember, coach is a good brand name. coach has been able to do a lot of brand extensions and be able to get margins. you have to execute so perfectly in that high end. look at burberry, they raised prices way too much and then they get pancaked, and people saying maybe that was an overreaction. look at michael cors. if you look as those outlet stores, you'd be surprised the even the outlet stores are dramatically high. somehow cors has got it. and coach has not. >> i've been in an outlet store. >> is there anything for less than $200 at cors? >> coach's product at the outlets is completely different. they make a product just for the outlet, which is pretty unique among most luxury brands, and they're not even luxury, they're aspirational luxury. >> right. guess was aspirational luxury
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for a while. i'd actually it rather be luxury. i think that this kors -- look, i'm very interested in kors because kors, to me, is overpriced. obviously, these things are in the eye of the beholder. >> the clothing or the stock? >> the stock, look, when you have the highest comparable stores growth, there's always going to be someone who says, i'll pay anything for that. typically from now till year end. when you look at value, value is not playing in. at the high end, value isn't playing in. but, carl, costco's got value, and that stock's been a rocketship. it's been really good. value plays. >> i see some upgrades of costco just this morning, which we'll talk about maybe a little bit later. meantime, pisani is on the floor watching what's moving. good morning, bob. >> good morning, guys. i think the important thing is the concept of troughs. that's a big debate down here in the last few weeks, a trough and q3 earnings being debated for the s&p 500 and maybe a trough in china. i know you guys mentioned china here, but 7.4% year over year on
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china's gdp, i'll tell you what i think is more important, the sequential growth, quarter over quarter, q2 versus q3. up 2.2% for china. you look at math, and that implies 8.8% growth. i know none thf is spectacular, but there's a big difference between slow growth and a hard landing. i agree with jim. it looks like a hard land sg unnecessary. did you see retail sales numbers? industrial production numbers have been improving. all of that plays into the gdp numbers. i'm aware of the skepticism about the numbers. we're all aware of the skepticism. but even the most severe critics of the chinese economy have softened a little. ino had a note out about all of this. they said, at best, we think china's economy will be stabilizing at a low rate in the fourth quarter. it's not great, but, again, slow growth is not a hard landing. another thing to remember is we're getting a changeover in the leadership. the national party congress is in november. they're going to be changing over. a lot of people seem to think the chinese leadership has been not paying a lot of attention to
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the economy because the political events have been dominating their attention. once we get past that, once the new leadership is in place, a lot of people think the chinese officials are going to get a lot more aggressive on the chinese economy. so bear that in mind. speaking of troughs, q3 gdp -- excuse me. q3 earnings, everybody talking about negative. they have been positive for the last couple of days. i noted this on monday. i said, they're going to go positive. they've been positive so far. 20% of the s&p 500 reporting so far. 20%. we are positive for the q3. 62% are beating. that's the historic norm. and right now the fourth quarter numbers are holding. estimates are up 10%. so they're not deteriorating any more at this point. did you see over in europe? one reason things are holding up. europe is stable. spain easily sold a whole buvenllibunch of bonds. this morning the ten-year at the lowest yield since april. and notice gdp. notice it's positive. sheetrock sales have been slowly improving. more on that at 11:30 eastern
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time. michelle, back to you. >> let's head to the bond pits. rooster santelli standing by with the cme group in chicago. what's moving things the most, rick? is it the spain news? the employment data? >> it's all of the above although i think on the employment data, the drop in jobless claims, i don't think that moved the market a lot. it did move it a basis point or two because i think most market participants knew the drop last week wasn't going to last. it was an artificial drop, seasonalities, whatever it is. important patterns, easy technicals today. look at the two-day chart, but more importantly, look at the chart in august. you see this wedge we're in. same for booms. the reason it's important is because the wedge that we have as we get tighter and tighter in this formation, is defined by the 200-day moving average on top and the 50-day moving average on the bottom. and it's the same pattern and the same moving averages for both booms and ten-year. for our ten-year, the top of the range is 180. the 50-day moving average is around 170. it's 160, 150 on the booms.
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it couldn't be easier. we're going to break out one way or the other on this. the tighter it gets, the bigger the breakout usually. back to you. >> thank you, rick. let's get the latest in energy and metals. go to sharon eppersson at the nymex. >> they were very focused on the chinese gdp data, but those numbers improving. that should be bullish for oil prices, but we're looking at lower prices. the jobless claims number certainly put pressure on u.s. oil price. and tlar looing at the forecast from goldman sachs regarding brent crude prices for 2013 will be at $110 a barrel down from their earlier forecast of $130 a barrel. some traders skeptical, saying that's where we are at right now. keep in mind that goldman is traditionally the most bullish on the streets, and that has been their stance.
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they're saying even through 2015, brent crude prices centered between $100 and $110 a barrel because of improving supply from countries outside of opec, that is something this market is paying close attention to. and they're talking about the spread between brent and wti. closer to $20 a barrel from the $24 mark we saw earlier. with the seaway pipeline coming on, we're going to see that spread narrow to $4 in the new year. back to you. >> thanks so much, sharon. time to talk telecom, of course. we'll hit a few different stories. start off with clearwire, a story i've been talking about for some time, at least since we first were reporting on the softbank sprint talks as part of that i've been reporting. a desire on the part of sprint to consolidate clearwire. they have already in a sense gone over the 50% ownership with the purchase of $100 million worth of stock at $2.60 a share. from eagle entity controlled by
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craig macaw, one of the founders of clearwire. 50% voting power over clearwire with that transaction. over time, there's still a desire on the part of sprint to consolidate a lot more across the company. we're not just talking about the company. 75% of shares they don't own. plus more on the debt side of the picture. on the sprint side, up on this. it's going to stay in this range given the $6.30 value overall of the softbank transaction, which will take between six and nine months to complete. the hope on sprint's part, sources close to the company continue to tell me when that is complete, they may be in a position to complete a clearwire acquisition, but we seem to have put a ceiling in there. $2.97, we'll see. it trades like an option, does the stock. the bonds are a more interesting subject. you have watched them move up more sharply in price, down in yield. clearwire has $4.4 billion worth
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of debt. $3.2 billion is first lien. $2.9 billion is callable as of december. they're paying 4% on that $2.9 billion. that could change dramatically. if sprint were to bring that in, the cost of capital would dramatically drop for clearwire as a part of sprint, the same way that sprint is going to potentially drop as part of the overall softbank entire. those are things to keep in mind as we watch clearwire's stock and bonds, which have traded extraordinarily well. as for verizon, we're watching that stock as well this morning. did i hear something, jim? hi, jim. >> david, i think that there's going to be something interesting happening with sprint stock. you're tendering, so the stub may be somewhere between $3.50 and $3.60 when the smoke clears, right? it's not going to be at 5 cents. >> i don't know about that. a lot of people think the adjusted value of sprint stub, so to speak, the 30% remaining in the public realm, is going to
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be closer to $5.25 a share. that's at least what people are using -- i'm sorry, unless i'm not following you. as the assumption, remember, they're buying stock at $7.30 and also buying at $5.25 from the company. >> what's left -- i believe that what's left is going to drop the stock. it will be artificial, but the stub will be worth a couple bucks less after this. >> well, we'll see. again, based on the assumptions of people as to where it will trade, you're right, it will drop. but nonetheless -- >> i'm just speaking where it will trade. >> yeah. carl said thank you. >> i don't want people to say, hold on, what happened here? the company must have done something wrong. no, it's the blended value afterward. >> thanks, jim. we'll come back to you in a minute. when we come back, all about making bucks in the buckeye state. jim has more from ohio about investing in america the cramer way. plus an interview with chesapeake's aubrey mcclendon later today.
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if someone wants a job with you, what do they need, and what do you make? >> the guys around today, their compensation is $75,000 an hour. the drilling superintendent, he's 30 years old, been in the business for about ten years, and he makes about $200,000 a year. >> chesapeake ceo aubrey mcclendon talking to cramer about jobs in america and a lot more. jim, i can't remember too many interviews he's given on television, at least, since reuters was on his tail every day. >> this is it. he hasn't spoken since the big
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controversies involving corporate governance, where the company is going, what's it doing? is there a new restrained chesapeake? major focus of the interview. also, the revolution in natural gas. the quote that you saw, the little clip, is in response to something that was the topic of the debate, where the president is talking about we need not just jobs, but high paying jobs. we're going to cover jobs. we're going to cover the revolution in natural gas, and we're going to cover what happened with chesapeake. what went wrong, what's going right. >> all right. do we have any other sound? is there an additional shot from mcclendon, guys? all right. let's take one more listen, jim. i want to hear every bit we can. this is aubrey with jim. >> sure. is the company restrained enough for the new board members? many of whom, by the way, are people who very traditional backgrounds and may not like the old wildcatting ways of your company. >> well, they certainly like the
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asset base that the old wildcatting ways gave us. >> that's good stuff too, jim. we'll see a lot more, of course, tonight on "mad" 6:00 and 11:00 eastern time. if you want to talk about real records, you may need to look outside equities. the co-head of jp morgan's global debt capital markets will explain. but first -- >> coming up, cramer may be hanging at a steel plant today, but he hasn't forgotten his roots. his six stocks in 60 seconds will be right on schedule. when "squawk on the street" returns. at optionsxpress we're all about options trading.
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good morning. in the next hour of "squawk on the street," we're going to take a look at echt bay. ken center will join us live. also, is it time to lighten up on china? have we bottomed out or about to bottom out? certainly, there's no hard landing. also ahead in the next hour of the program, jonathan tisch will join us from loews hotels.
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a big push to get brazilian and chinese tourists here spending foreign money. carl, it's like an export. back to you. >> thank you so much, simon. time for six in swing state 60. six stocks in 60 seconds. jim, who's in ohio. we'll start with united rentals. >> yesterday the stock was up gigantically. why? the renting of capital equipment is strong. i think that's a positive sign for the economy. >> we haven't talked much ebay. earnings last night? >> carl, i think you guys are going to be discussing it with simon. this was a triquarter for paypal. that's what matters. much better growth than american express, which was open. >> was key corp. the best earnings so far? >> i think key corp. actually tops citigroup as far as being the best. this was really good data interest margin. the only other one that had it is citi. >> ibc downgrading potash. >> potash needs to lower its costs. the way to do that is use
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american natural gas. more on that tonight. >> mellanox, you say is blowing up. >> this is an israeli based company. they did tepid guidance. not enough. >> and lowering the value on facebook. >> i can't emphasize enough. there's a big lock-up. be careful, facebook. >> you've got a lot tonight, and it's not just chesapeake. what else? >> soup to nuts on the way power gets to your house. chesapeake for the natural gas. and then spectra energy uses timken steel to be able to get the natural gas to american electric power, which then provides the most power in electricity in the country although they use a lot more coal, we'll talk about that, than they do natural gas. >> jim, have a great time. be careful on that factory floor. don't touch anything. >> steel toe. all steel toe. and these are, by the way, bali. steel toe bali. >> yes, of course. thanks so much. a long day for you, jim. when we come back, philly fed.
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welcome back to "squawk on the street." september leading indicators torquing up. we're expecting up .2, but up .6.
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the revision last month from minus .1 to minus .4, kind of neutralizes it. philly fed, we're expecting 1% to 2%, up 5.7%. that's the best level since april when we were up 8.5%. remember, we had one, two, three, four, five negative numbers in a row, so this really is a big turnaround for philly fed, which by the way, is an october number. if you look at the equities, the equities started to jump before i saw the number. it was pointed out by the pit, maybe somebody with a nervous reverse positions. these things always get a second look when you you see moves like that. carl, back to you. >> thanks very much, rick. big data as you just heard from rick. interesting article out of "the washington post" saying the president is ready to veto any legislation to block year end tax hikes and spending cuts, otherwise known as the fiscal cliff, unless republicans bow to his demand we raise rates on the wealthy. want to get his reaction from philly fed and lei with steve
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leesman back at headquarters. you want to start with philly? >> the internals on this don't look terrific, carl. the headline number did change and was positive, 5.7, but some of the other new orders, looks like it was still negative. shipments still negative. there were some bright spots in it. the outlook for six months also down compared with september, but i guess some of the other ones that i'm not seeing here, contractual, were better than expected. i think the key here is this top line number did not confirm the empire state index. we've had really a two-track economy. better consumer data and the business tracking data has been kind of squirrely at best. this is just at least some firming. we want this number to be higher. it did beat expectations, but it's still a pretty low number. i wouldn't say the manufacturing sector is out of the woods just yet. i would say at least it stabilized and it helps to not suggest that we're headed down on the business side of the equation, carl.
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>> it looked like it was going to move major averages into positive territory. you look at the intraday chart, steve, it shoots right up, but it seems to be second guessing everything. >> that's the point. the market was looking to book profits because we have had a 2.3% gain over the last few sessions in the s&p, and there was a feeling it was top heavy. the mixture of data, steve, that the point you're making looks like we can hang in on the points we've made over the last few sessions. >> this is an excellent point. this is not necessarily a reason to go higher, but it had it been lower, had it been coming in at the consensus at 1, or had it been negative, you could say, you know what, business is what's going to decide the fate of the recovery here, not the consumer. if business pulls back on employment, if they're not seeing the orders, if they pull back on capital spending, then there's a reason to think that what's happening on the consumer side that's been positive won't last. if business can hang in there and you get these better consumer numbers, then we could still be -- instead of 1.5% to
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2%, given what's happened with housing and retail sales, there's a little thinking, maybe it's a 2% to 2.5% economy. it's nothing to write home about, but i wouldn't write a multi-page letter about it. >> nice way to put it. let's talk about this "post" article, steve. last week you interviewed simpson and bowles and blankfein. today this news that the white house is really going to say my way or the highway. is this a game changer? >> it really could be, but when you think about game theory, when you look at how agents will act in a certain scenario, you've got to hold some things constant. but when you look at this, there's nothing you can hold constant. you don't know who's going to win the election and you don't know by how much. you don't know who's going to have the house, but by what the margin will be in the senate. so that's really key here. i can't game this out how much power really obama has or how much power the democrats and the
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republicans have. >> there is certainty here because obama is quite clear. he wants the taxes to rise on the more wealthy of society. that's the whole election campaign. that's the substance of it. the other constant that you have is you know the man has the power of veto into january, and they've got to do a deal on the fiscal cliff at a time when some republicans are indicating, you know, maybe we have to give way on the wealthy tax issue in order to get some of the other things we want through. looks to me like there is certainty, taxes are going up on the wealthy. >> i think that's right, simon, but i just think that the whole zeitgeist that will happen after the election is what's going to determine the compromise. what people should be saying now is no matter what happens in the election, i will not let the fiscal cliff -- i will not let the economy go over the fiscal cliff. people need to be saying that right now. they're not saying it. and that's what business wants to hear. that could perhaps -- if republicans and democrats could give business the assurance they want that they won't let the worst outcomes come to pass,
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then i think business would be unshackled here. >> echoing what they said last night to maria. steve leesman back at headquarters covering basically everything. let's get to the road map. inside china's gdp numbers. what they're saying about the economy and how it affects the economy. has china hit a bottom, and is time to buy? china's chief strategist here. >> plus, inside obama's push to make the u.s. the top travel destination for foreigners. we'll speak exclusively with one of the men driving that, the chairman of loews hotels, now the first hotel chain to partner with the department of homeland security on a new visa situation. >> on the earnings front, ebay's third quarter results forecast coming in line with the street's expectations. as competition heats up among online retailers, should ebay be worried. >> and the hunt for a yield becoming increasingly difficult for those junk bond markets as
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hunts dip to all time yields. david faber, the global head of global capital markets of jp morgan of how the fed just might now be to blame. >> let's get back to telecom. verizon reporting a 16% jump in third quarter profits. it was held by higher data rates and a surge in wireless subscriptions after the company started selling the iphone 5. we have got more data as well on those activations over the course of the quarter. they activated 3.1 million iphones during the quarter. that compares to 2.7 million in the second quarter. 20% of those activations roughly were the iphone 5. smartphone penetration at verizon is 52.3% of phones, up from 49.7% in the second quarter. smartphones were 68% of the devices sold during the quarter. lte, the next generation of wireless services we talk so often about, that is here, and that is such a key in terms of the softbank transaction to acquire 70% of sprint.
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accounted for 35% of data traffic over the course of the quarter. overall, verizon did add a lot more wireless subscribers at 1.5 million, than had been anticipated by the analysts who follow the company. on the wire line side of the business not quite as strong, but you see the stock has been reacting largely positively this morning. many say, of course, it's got a pretty high multiple, and it does. it also has a nice dividend, which is helpful in these very low yield times. >> a lot of people looking for yield. turning to china, gdp numbers hitting their lowest level since '09. growth slowing to 7.4%. a lot of questions looming about the truth behind the data. joining us is chief asian and emerging markets equity strategist for jp morgan. adrian, good to have you here. bottom line on these numbers. some say this number proves we're troughing on the chinese economy. do you agree? >> look, i wish hi some money for every time someone's mentioned stabilization today. i even saw you mentioning it about u.s. data. i don't think the chinese
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economy has actually troughed here. the leading indicator that we look at is industrial profits, which are down 6% nationwide. soe profits are down 16%. so our expectation is that cap-ex in china will moderate as companies try to reduce profits by increase gs expansion and cutting costs. so don't treat these as the bottom of the chinese growth numbers. >> we were showing viewers earlier on, if you want to dig down into what's happening with heavy industrial production there, if you look at electricity consumption by that sector, if you look at rail freight, it is down, suggesting that that area of the economy is still week. if you're playing commodities because of china, you've got to be looking at those numbers specifically. are we too simplistic in the way we're looking at china? there's the industrial production and others who would have us say, you know what, the consumer area of china is getting stronger. that's going to offset maybe an
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overall decline. >> i think what's incredibly important in china is to understand there is a lot of data available for you and look at the detail. and i think many bad investment decisions are made by simply looking at the gdp number. if you look at, as you mentioned, electricity sales, but if you look at clinka production used in the making of cement, steel production, those are all flat year to date. truck sales are down 8% year to date. excavator sales are down 5%. the impression you get is the mixed capital forms has stalled in terms of growth rate. however, car sales are up 8% year to date, and retail sales which printed today at 14% show a relatively healthy economy. the question, though, is as we go into 2013, with this slowdown in investment activity, will that then impact the labor market and then impact consumption? i think that is going to be the big debate of 2013. >> but to be clear, adrian, we
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can take the tail risk off the table of a hard landing. that is not what you're talking about here even with that slightly more negative analysis in an environment where many people do, including bank of america, believing we have now troughed. whereas the market might be a huge rebound, we could make gains from here. >> if you're making excavator down 25%, that's hard for me. truck sales down 8%. feels pretty hard. if you're in retail sales, no, it's not a hard landing. the question here is the detail. the problem, though, with those consumption numbers is that the store opening is running well in excess of retail sales. so the consumer stocks in china are seeing declining asps, declining same store sales growth. the capacity utilization for the auto industry is falling from
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100% down to 75 b%. so we've definitely got a hard profit landing in china, and some industries that are very related to fixed capital formation are seeing a year on year decline. we never really defined what hard landing is, but i don't really like declining top line numbers. >> yes, so we have to get it more nuances for so many years. china's growing. and you can bank on certain numbers of things. but now the same way to handle the u.s. economy, got to dig deeper into the numbers. figuring out what's going on in the sector. what about this exchange in leadership that's coming later in november? that's starting november 8th. do you really believe that, once there's new leadership in place, that we could see an improvement in the economy, that they're going to start paying attention more? that would imply for kainesian spending on their part, correct? >> i think it's hard on china's
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leadership to say they're not paying attention. 72% of the working population has a job in china. that's one of the highest numbers you'll find in emerging markets, about 10% higher than in any developed markets, and inflation is low. a sensible policy maker in that environment should be going on holiday rather than worrying about the economy. we seem to impose an idea that china needs to grow at 8%. come on, it's pretty irrational. they've got full employment. they've got relatively low inflation. at the moment, what you should think about china is it's like a large corporation where we know who the new ceo is and the coo is, and everyone below that's fighting for the prime position. we don't have any clarity even on the number of people in the standing committee at the politboro. will it be 7 or will it be 9? we don't know about the difference -- sorry, carl. >> we're running out of time rapidly here.
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before we lose you as you are, the chief asian and emerging equity guy for jp morgan, where do i make money at the moment? what is the hot market? what's the tip? >> the best market at the moment is india. there's been some really interesting changes in reform. the other markets we like are in the asean region. we like thailand and the philippines. >> all right, adrian. thank you so much. joining us from hong kong, your evening there. you're up late. we appreciate it. >> and from china to the newsstands, another magazine hitting the print grave yard. after 80 years in print, u.s. weekly magazine "newsweek" will publish its final edition in december and move to an all-digital format early next year. it will be called "newsweek" global and will be a single edition that requires a subscription. it was first published in 1933. the final print edition will be published on december 31st. >> is it really sad to say, do you think anybody will notice? >> i think people will know. >> harsh. >> you know there's money to be
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made online. the financial times has taken its subscription automatically from the overnight. i am astounded at the inflation in online subscriptions. it's many hundreds of dollars for the ft. >> will anybody notice the print edition is gone? i can't imagine many people got it anymore. >> print circulation is, i think, half what it was five years ago. >> and that was already down sharply. >> brings us to this morning's squawk on the tweet, by the way. which was just in prompter a second ago. i think in general our question is how would you explain to your kids what a magazine was? our twitter handl handle @squawkstreet. we'll get your answers later on this morning. >> i feel so old when you ask that question. >> old isn't a word we use on this program. ohio once the heart of america's steel industry, now more a symbol of america's rust belt, is looking to rebuild itself all on the hopes of fracking. we're bringing you the details live from youngstown, ohio,
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next. and still ahead, verizon chairman and ceo lowell mcadam will join us live for an exclusive interview on the back of his company's earnings release. [ male announcer ] you are a business pro. governor of getting it done. you know how to dance... with a deadline. and from national. because only national lets you choose any car in the aisle... and go.
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the drilling divide, youngstown, ohio, once the heart of america's steel industry, is no longer. what's the city trying to capitalize on? fracking of all things. the controversial drilling procedure is at the center of a
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proposal that could help youngstown erase a nearly $5 million budget shortfall. it's a story we like to call invest in america, part of a special day happening across the nbc family of networks. our own phil lebeau is in youngstown with the details. fascinating story, phil. >> carl, who doesn't like a good demolition? city of youngstown tearing down this abandoned house. they have more abandoned homes in youngstown than they can afford to tear down. the city is looking to cash in by looking to fracking for natural gas. in youngstown, ohio, where a rebound in manufacturing has sparked a resurgence, mayor charles samerone is frustrated. he sees a city in decline desperately in need of money to tear down abandoned buildings. >> if you wanted to tear down or renovate this building, how much would it cost? >> about $1 million to tear it down. >> reporter: to tear it down is $1 million? >> and on the other side have a grass or parking lot. >> reporter: tearing down 1,100
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aw abandoned homes will cost youngstown nearly $4 million, money the town doesn't have. so the city may sell its mineral rights and allow energy companies to drill or frack on city land. experts say fracking or pumping chemicals into the ground filled with oil and natural gas is filled with unknown risk, like the possibility of causing earthquakes and groundwater contamination. >> are you that crazy for money? >> i guarantee you, we will organize under the first amendment everybody in here and bring the wrath of god into this chamber and power back to the people. >> reporter: other cities have already sold their mineral rights. in scio, ohio, the money from drilling will pay for new sidewalks, water treatment, and perhaps give the town a shot in the arm. >> a few years ago, every storefront just about was empty. now there's new business coming in. >> reporter: as cities struggle with tight budgets, a windfall of millions of dollars trapped
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under public lands is a tempting capital to their cash crunch. >> this is something that could help the area not only now but 10, 20, 50 years from now, just like when the steel mills came here. >> reporter: back live in youngstown, ohio, and they are almost done take ying down this entire house, carl. to remove a house like this costs anywhere between $7,000 and $800. a quick update, late last night the youngstown city council did agree it would sell its mineral rights, or at least explore selling its mineral rights. it's interesting to see how much they get in the future for some energy company that's going to frack for natural gas here in youngstown. guys, back to you. >> phil, that is what you call television. we've been hearing from phil all morning long. >> that is amazing. we're watching a home get demolished right behind him. that's incredible. >> by the way, aubrey mcclendon at 6:00 p.m. tonight on "mad money." that full interview with jim. breaking news.
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scott cohn back at headquarters. big news involving dupont, the major chemical company. a south korean company, cologne industry and five of its executives indicted by a federal grand jury in malaysia. this is the long running dispute over trade secrets in kevlar, used in body armor and electronic parts and automotive parts as well. cologne develops over the last decade or so a competing product. this indictment says they basically stole the trade secrets from dupont over this. there was a civil suit and an injunction this year but stayed pending appeal against kolon. they were fined about $900 million in a separate jury verdict. this could be the nail in the coffin for this competing product and a big victory for dupont. we'll be following this closely. top justice department officials have a news conference scheduled at the top of the hour at 11:00 in richmond, virginia, with more
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about this, but it involves basically insiders at dupont who were recruited as consultants according to this indictment, and then they were used to tape meetings, to copy secret documents. some of them then turned state's evidence to the government, and now this indictment against kolon industries and five of its executives for stealing trade secrets from dupont. back to you. >> great story. thank you so much, scott. i'm sure we're going to hear more about that. coming up, president obama looking to make the u.s. the top travel destination in the world. we're going to talk to loews hotels chairman jonathan tisch as he too embarks on a big push to lure international travelers. we'll be right back after this break. tdd#: 1-800-345-2550 this morning, i'm going to trade in hong kong. tdd#: 1-800-345-2550 after that, it's on to germany. tdd#: 1-800-345-2550 then tonight, i'm trading 9500 miles away in japan. tdd#: 1-800-345-2550 with the new global account from schwab, tdd#: 1-800-345-2550 i hunt down opportunities around the world tdd#: 1-800-345-2550 as if i'm right there.
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their visas by 40%. >> i want america to be the top tourist destination in the world. >> so what's the progress? jonathan tisch is chairman of loews hotels and a key player in getting more foreign tourist cash spent here in america's tourist industry. good morning. >> good morning, everybody. >> we should be quite clear what the aim is here. one principal in an accounting firm said they want to bring so many tourists to new york that there will be a shortage in hotel rooms for the first time in living memory. >> certainly, we want to fill our hotel rooms, but also, most importantly, we want to create jobs. when the international visitors comes to the united states, they stay longer, and they spend more money. you mentioned china and brazil. we've gotten the wait times down for visa applications and the permitting process, give you one statistic. historically, average around 115,000 brazilians in new york. last year we had 710,000 brazilians. the demand is there. they want to come, and they like
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spending money. >> we should be clear. there's two things going on here. one is reducing the wait times in brazil and india for visas. the other is the visa waiver program, where if you're british, you can come over electronically. it's quite easy to do. we've got movement on both of those fronts. you've done a deal yourself with homeland security. what's your deal? >> loews hotels was the first major player in the industry to work with homeland security. we will speed up the process for our trusted travelers to go through tsa precheck and global entry. global entry has a fee of $100. for our best travelers, our best customers, we're picking up the $100. you mentioned the visa waiver program. there's currently 36 countries that are part of visa waiver. you're right, simon, if you live in one of those countries, you can come for 90 days and not need a visa. we need to get more countries as part of visa waiver to make the process easier. >> there are people watching now screaming at the television saying, aren't you putting the security of the united states at risk?
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there's a 21-year-old bangladeshy in prison today accused of attempting to bomb the federal reserve, and he came here on a student vi sachlt -- visa. >> we believe in secure borders but open doors. international travelers create jobs. for every 33 international travelers, we're going to create another job. >> are we talking adding more to food and beverage or constructing new hotels from scratch? >> it's all included, carl. it's the whole panoply of why the tourism and travel industry is the number one industry in this country. 17.5 million people make a living in an aspect of travel and tourism. it's job creation. you have to understand, in terps of supply and demand, it's hard to build hotels because it's hard to finance them. but if you have good equity from the debt partner, you can go out and get financing. >> but the other economies have actually gotten better. visas were required for a lot of countries because the fear was
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those immigrants would come, the economy in their country was so awful, they would never leave, they would just overstay the visa. you don't have those issues so much necessarily with brazil and china because you can go back and get a job there. >> and countries are letting their people travel for the first time, and they've got the dollars available to go on a trip to the united states. you have to understand the competitive nature of travel. we're competing against other countries for inbound international travelers. australia and france and spain, they all spend hundreds of millions of dollars trying to get people to come to their country. we want them to come here so we can create jobs. >> there's no shortage of tourists, i can tell you, in new york city, jonathan. i walk out of the new york stock he can change every day, and it's a sea of tourists. gi to 30 rock, by the way, i can't get away from any of them. can you at least create lanes for new yorkers to walk in? >> or at least have signs telling them where to park. it's all about me really. stop with the pictures. >> i don't think people realize.
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>> they're not asking you to pose with them of the that's what you're upset about. >> a uconn traaucontrare, they day. what you hadn't got is price rises. you haven't got pricing power. when that comes, a lot of these stocks could absolutely rocket. what do you think you get that? >> it's going to come in the next few years. obviously, consumer confidence is very important to our business. the earnings of companies are very important. when demand is there, we'll be able to raise our prices. >> how about bernanke printing money? that's got to be good. brazil can buy a lot more hotel space than before. >> it all helps, and it's all good for our company. >> you look great, by the way. >> thank you, carl. >> it's all the cycling he does every morning. >> don't tell, michelle. >> xwot some breaking news now on nat gas inventory. sharon? >> natural gas futures slightly lower right now. we did get a report from the energy department that said
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natural gas storage level rose by 51 billion cubic feet in the past week. this is slightly above the range that surveyed analysts were looking for. they were looking for somewhere in the range of an increase of 47 to 50 bcf. it's still double -- or i should say half of what we saw last year and far less than the five-year average as well. what has been happening is the surplus of natural gas continues to dwindle, and it's now down considerably from where it was at the height in march. we're still looking at a couple more weeks left here in this injection season before we start to see withdrawals of natural gas due to the heating demand. this is a key time in the natural gas market as we look at the surplus continuing to dwindle, and we see the resulting price action. right now, though, basically flat on the session. just down a couple of pennies for natural gas around $3.44. back to you. >> thank you, sharon. ebay reporting quarterly
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results that edge past expectations. the company's outlook came in line with estimates. ahead of the holiday season, should ebay be worried about the increasing price competition among online retailers. coming up. gecko (clearing throat) thank you, mr. speaker, uh, members of congress. in celebration of over 75 years of our government employees insurance company, or most of you know it. ...i propose savings for everyone! i'm talking hundreds here... and furthermore.. newcaster: breaking news. the gecko is demanding free pudding. and political parties that are actual parties! with cake! and presents! ah, that was good. too bad nobody could hear me. geico. fifteen minutes could save you fifteen percent or more on car insurance. boring. boring. [ jack ] after lauren broke up with me,
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we are an hour and five minutes into trade, 7:35 on the west coast, 10:35 here on wall street. our main stories so far. the philly fed survey for october rising to 5.7 from minus 1.9 in september. that ends five consecutive months of contraction in mid-atlantic factory activity. travelers up 4% to all time highs. the insurance giant's third quarter operating profit blowing past wall street expectations. shares of the dow component are up about 25% now over the past six months. and freddie mac says the average rates on the 30-year fixed mortgage edged lower in the past week to 3.37%. the 15-year fixed hitting a record low of 2.66%. >> basically free money. ebay meantime reporting a strong double digit gain in earnings for the third quarter. growth in paypal and marketplaces adding to those gains. kent is a consumer analyst for
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evercorp. partners. good morning to you. >> good morning. thank you. >> just looking at the revenue increases at paypal. we always ask why they haven't changed the name of the company to paypal. >> i think some of the excitement around marketplace is it's actually coming back. this quarter the strength, while it was in line, the expectations were pretty high, i think marketplace has shined a little more than paypal this quarter. >> on the revenue front or the margin front? >> both. marketplace came in with strong active user growth, 10% year over year. third quarter of acceleration and the fastest growth since 2007. usgmv came in at 16%. that was much higher than what people were expecting, and margins came in about in line. while paypal, there's a lot of excitement long term, the company is investing there quite heavily, and i think going into the holiday season. paypal still is very exciting, but i think some of the near term enthusiasm has more to do with marketplaces showing signs of real recovery.
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>> how do you think the holiday season in general is going to play into that? >> the company is hedging a little bit. they're looking at it being an okay holiday season. but i think ebay stands in a good position. i think they are a partner to retailers, and as you look forward to the holiday season, i think people expect quite a bit of price competition right now. to some extent, ebay is agnostic to that. if consumers get better prices and they're able to find those items on ebay, i think they benefit. >> when you cut through all that, ken, it's quite depressing on you're saying where you believe the stock will go from here, given you think people have had the luxury of gaining two thirds of their money. it's been a phenomenal rise so far this year. is your price target $52 or $54? i'm not quite sure. we certainly believe we've topped out. >> it's $54 right now, but i do think there's probably upside to that. the reason is comps get easier within the marketplace business. while you might not see some of the expansion in margins at
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paypal near term, i think they are building a very strong business there. i think the deal they did with discover, it certainly handles the merchant adoption issue, and then it's just a matter of them being able to roll out a product that works for consumers. i think within the marketplace business, they're rolling out early products that really stand to drive acceleration, and i think, when you look at estimates next year, i think they're calling more for deceleration. my target price is probably a little conservative at this point, but we are excited to do more work on some of those early initiatives we're working on. >> isn't it ultimately paypal where the growth is expected to be? should we just not assume that anymore? i've got to think blow hole expansion and also different types of retailers and different placements. or is this supposed to be a big yard sale? >> i think paypal is a phenomenal business. when you look out at the opportunity of point of sale, it stands to be a major player there. i think the marketplace business has been potentially written off too early. i think, when you look at the overall liquidity of that marketplace, it still is among
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the largest, if not the largest third party marketplace right now. i think a lot of the changes that ebay has been making, some of them maybe have been more in a sense of low hanging fruit. but i think they're also actually starting to make pretty exciting changes in terms of the news feed to get products delivered to you, easier checkout, and also the mobile applications, i think, are pretty compelling. i think that that is another area of the business which investors should be looking at enthusiastically. >> i think, before we let you go, ken, i think we've built a list of the most expensive. am i right about this? the most expensive items that are sold on ebay. 4.9 million for a g2? lunch with buffett. a former missile base, something everyone needs. the entire town of bridgeville, california. a honus wagner baseball card. i wonder, ken, over time, if the average -- maybe the median price point has to have gone up, right? >> actually, i think you're seeing the price come down. two reasons there. one would be the vehicle sales category is becoming a much
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smaller factor for the company, and second has been around currency headwinds. pricing was down in the quarter. if you separate out the vehicles, i think that that's something that will stand to increase over time too. >> we should have the buy now button for the g2 jet. >> i think they're close. >> ken, thanks so much. always good to talk to you. >> thank you. >> subcategory based on color. we've got a market flash here. this time within the semiconductor space. brian sullivan is back at headquarters. >> thanks, michelle. when you're trading at 34 times earnings, you'd better not disappoint the street. that's exactly what mellanox has done, israeli based semiconductor manufacturer. the problem, the street estimating $156 million. that stock is down 21%. got to note, it is still up 140% year to date. high flier getting whacked because good wasn't good enough. back to you. >> next on the program, demand
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for corporate junk bonds is at record levels. you know the race for yield, companies certainly clamoring to keep up with what seems to be that insatiable demand for high yield debt. is it a bubble, and is it about to burst? we've got one of the top brass at jp morgan's debt capital markets with david faber next. plus verizon getting a boost in the third quarter. we have an exclusive interview with verizon's chairman and ceo. that's ahead on cnbc.
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high, and demand is even higher, a situation our next guest said became even more extreme after the fed's third round of quantitative easing last month. jim casey is global co-head of debt capital markets at jp morgan. nice to have you here. let's start off with the math as a result of qe3 in terms of demand for all bonds, including high yield, and issuance. >> we start with net new supply. if you take out the bonds just recycling. bond holders essentially refinancing themselves. take that out. across all bonds, emerging markets, high grade, high yield, emerging yields, everything, per month. then buyers want to buy $40 billion of mortgages per month. and corporate buyers, private buyers looking to buy around $60 billion a month. they're reinvesting coupon, and they're getting inflows from people who want to be invested
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in bonds. you've got $30 billion to sell and $100 billion of demand. you've got a very serious imbalance of $70 billion a month. you start to annualize those numbers, and it starts to get very large. >> so the fed is trying to get rates down even lower in all sorts of risk assets, i guess it's going to work. >> it's working. if you look at -- you're right. your opening comment was spot on. we've got to rename the product. it's no longer high yield. the average coupon in high yield is 6.5%. >> a third of all deals are done below a 6% coupon. >> that's correct. the new name should be slightly higher yield but not high yield. >> when people hear this, of course, this idea there's not enough supply and too much demand, immediately people think, okay, we've got to be creating what may be a bubble. do you agree? >> you know, i don't. i think the things that we look at to determine whether we're getting close to a bubble is what are the -- what's the money being used for and what are the credit spreads? if you look at absolute coupons,
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that could be misleading because all has to be done on a relative basis. you always want to look at the return you're getting in excess of treasuries. if you look at high yield, the average credit spread is 600 basis points. way, way wider than the all time low, which was june of 2007, which was about the high watermark the last time around. and so we've got a good gap there. the long-term average in high yield is around 550. so we're not even at the long-term average. the same is true for high grade. credit spreads in high grade right now are around 150 basis points over, and the all time low in high grade was may of '05 when it reached 90. >> that doesn't necessarily make sense. if you have so much demand and limited supply, one would expect that investors are willing to take more and more risk and therefore accept a lower and lower return, including the spread above treasuries. >> we're getting there is the answer. and we do think that we can see some more spread compression before this is over. but the point about whether we're at a bubble or not, i
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think, is most accurately analyzed by virtue of what the credit spreads are, and they're not high. we do think these credit spreads can come in from here. >> have you guys already called on every company it's possible to call on and say, come on, we've got to issue debt. we started to see debt, mentioned an hca deal a couple of days ago, huge $2.5 billion deal on the high end market. some going to pay a dividend because there's worry the dividend will go up. i know we're setting records across the board. aren't we? >> we are. we're setting all sorts of records for low coupons and for absolute new issuance. so in the high yield market this year, there will be more than $300 billion issues. in high grade, there will be more than $750 billion issued, also an all time record. all time record for europeans coming into the united states in issue debt. new record in emerging markets. across the board, we're setting records. on the dividend point, a lot of dividends getting done.
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as a percentage of the total market, still relatively low. dividend yields are only around 10% of the overall market. quite a few of them. hca, you mentioned, jp morgan just did a deal for petco. did a deal for joanne's stores. did a health care deal, ppi. did a lot of these are -- the companies may be public, but they're still owned largely by private equity or to a certain extent. >> they're usually private. and they're being done with holding company notes. >> when i start to hear pay in kind or choose to pay in more interest or debt. i get worried. >> i don't think you should be worried, david. because, well, we're trying to sell these notes. we're not worried about it. >> okay. >> the way we look at it is most of these holding company notes have the ability to pay in cash. and so the pick toggle feature is the result of the fact they have covenance.
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at least in the beginning, there's certainly enough cash to pay all of those bondholders interest in cash. >> jim, before we let you go, lbos, we haven't seen a lot of them, and again, a huge engine for the high-yield market. a, what's the biggest deal you could do right now? and b, why haven't we seen more? >> so the biggest deal, biggest leverage deal we could do right now, we probably raise between $50 billion and $25 billion -- >> $15 billion to $25 billion? >> yeah. >> that's a lot higher than other people say. you guys must be doing good work over there at jpmorgan. >> these companies should come to jpmorgan and we'll give them the money. >> okay. why haven't we seen anything approaching that? >> m&a is driven by three factors, access to capital, there's plenty of access to capital, but the third, the third variable we're missing is confidence. ceos don't have the confidence to go and buy a company right now because there's a lot of
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risk in that. >> jim, as always, appreciate your time and insights. >> great to be here. >> jim casey, global co-head of capital markets at jpmorgan. thank you very much, david. ahead on the program, cuba's fidel castro says he's not dead yet, but big money is betting on regime change. michelle caruso-cabrera will have the details next. but rick santelli working on the third hour of "squawk on the street." >> well, simon, past performance is no indication of future possibilities. we see a very similar boilerplate on many things, including mutual funds, different types of accounts. we're going to try to gauge exactly how much you can depend on past performance to make a guess about the future with some companies that i'm not going to name. and we'll see how this exercise turns out. top of the hour, and then bottom of the hour, nigel on a hot topic in the uk, who's paying their fair share of taxes? have to tune in for that one.
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the cuban government releasing a letter today from supposedly fidel castro. this comes amid the rumors that the president's health is worsening. we had heard rumors he was on life support, he may have been brain dead. here's from the website. it's the first time in nearly four months we've supposedly heard from the 86-year-old. we still haven't seen him since the pope visited the country back in march. all of this, some change is happening within the cuban government leading to speculation that fidel castro's health has big-money investors hoping for eventually a major payout. there's about ten hedge funds in london, two of which have amassed very large position in defaulted cuban debt, guys. stuff that the cubans borrowed in the '70s, they defaulted on or restructured in '82, '83, '84, '85 and stopped paying in 1986. bought it for roughly 8 to 10 cents on the dollar and thinking they can get maybe 29 cents if
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and when 26 to 49 cents, 512% return depending if and when relations are normalized. >> i thought you were going to say if he ever dies. >> if he ever dies, which is questionable at this point, i think. >> in dollars? >> some of it's in yen, some of it's in swiss francs, some of it's in -- >> no dollar denominated debt whatsoever. >> that is his signature. >> what is his signature? >> that is his signature. so he's clearly still alive. >> it's amazing. we've been down this road before. and you've got chavez with a new six-year term. and no telling when politics will change in cuba. unbelievable. i want to thank you for being here today. >> pleasure. >> you're going to come back tomorrow. >> tomorrow. >> you're not going to thank me for being here, as well? >> no, because you're not done. and david, you're coming back for verizon. >> about half an hour from now. briefly, google fighting for
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the spotlight. tech giant sending out an invitation for a special event on october 29th two days before halloween and the same day as microsoft's windows 8 launch. is this a big tech war brewing? we'll talk about that ahead. a crash management system and the world's only tridion safety cell which can withstand over three and a half tons. small in size. big on safety. which can withstand over three and a half tons. when you take a closer look... the best schools in the world... see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... they can inspire our students. let's solve this.
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welcome to hour three of "squawk on the street." here's what's happening so far. >> did we beat the street expectations, loans grew, capital grew, deposits grew, customers grew. credit quality was good, expenses were flat. we really had a good quarter. >>. >> a lot of this stuff is not easy, politically controversial, sometimes unpopular, but that's when leaders have to step forward and say we've got to fix this thing and i'm willing to take some hits to get it done. >> china is doing everything it can to reaccelerate the economy. but in order for you to get that reacceleration, you need to see some of the other beneath the line numbers that we saw last night that were good. i've been growing bullish on china. if we had a deal and then you want to raise taxes, i think that's terrific because the stock market's going to go up, everybody's going to make more money. but this is once again the cart before the horse. a deal is what we need not ideology.
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what do you need? and how much can you make? >> the guys you've seen working today, their compensation is going to be around $75,000 a year. the gentleman that helped you at the driller's chair, he's a drilling superintendent, he's 30 years old, been in the business for ten years, makes about $200,000 a year. >> why the travel and tourism industry is our number one service export in this country, and 17 1/2 million people make a living in some aspect of travel and tourism. it's job creation. >> good thursday morning. we are live here at at the new york stock exchange. we want to check the markets with the dow almost exactly flat. of course comes after four straight days to the upside. we are just a few points away from that december 2007 high. and we've closed near the highs of the session for the third straight day. we'll see where the afternoon brings us. s&p down a point and a half
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roughly, nasdaq down 13. a grand jury is indicting five executives at a south korean company on accusations they schemed to steal corporate secrets from dupont. those charged include a company vice president as well as four other executives or managers. juniper, one of the biggest gainers after reports the company's hired jpmorgan to handle bids from potential buyers. want to get to the road map today. the president playing hardball with republicans, apparently, when it comes to the fiscal cliff. reports saying he will veto anything that does not involve a tax hike for the rich. so will washington be able to compromise? then, google taking a page out of apple's book sending out an invitation to a new tablet or new phone. what this means for microsoft. plus, one of the most visited lyric sites in the world, rap genius is taking the venture capital world by storm getting $15 million, can this help decode the whole internet?
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and then verizon reporting a third quarter profit boost thanks to good wireless business. the chairman and ceo will join us live for an exclusive interview you do not want to miss. we'll start, though, with the "washington post" this morning citing an administration official saying the president is prepared to veto any bill blocking the fiscal cliff that does not include a tax hike for the rich. our john harwood joins us with more on that. john, it's right there on the front pages today. how important is it? >> well, it's no surprise, carl. the president has been saying for a long time that's what he intends to do. of course, he did extend those bush tax cuts at the end of 2010, but now he's got a lot more leverage because it's going to happen after the election. if he's reelected, hooest going to hold the cards and be able to tell republicans that if you don't give me what i want, a tax increase on the people at the top, i'm going to let the tax cuts expire. what does it mean to go over the fiscal cliff? you're talking about in 2013, an expiration of the bush tax cuts and meaning the top rate goes to
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39.6%, an expiration of the payroll tax cut, which is now in effect, an expiration of extended unemployment benefits, and also $60 billion evenly divided between domestic and defense spending. of automatic spending cuts. all of that would have the effect of sucking demand out of the economy and could tip us into recession. you've got the financial services round table out with a letter this morning, wall street executives saying you've got to get a deal on the fiscal cliff. and this is part of a drum beat we're going to hear between now and the end of the year, not going to be a solution until after the election, but a lot of pressure to get this done. and i think president obama intends to work with leaders in the house and senate to get it done once we get a verdict on election day. >> the post does not go anywhere near what would happen if, in fact, obama lost. they're unable to get the white house to say whether that veto threat would then stand. >> well, right, because then
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you're going to have mitt romney coming in and then the president would have to decide do i simply let the cuts expire and then let mitt romney try to deal with that, try to implement new tax cuts in 2013? don't know exactly how that's going to play out. and, you know, we'll see. right now the president's a slight favorite for re-election, but he certainly could lose it and we've got a whole new ball game. democrats are certainly going to be a lot less willing to play ball with mitt romney if mitt romney wins the election. >> yep. last question, john. david gregory this morning tweeted that he had talked to a very prominent business leader that in this business leader's view, whatever solution comes would be plus or minus 10% of the simpson/bowles framework. t does that sound right to you? is that what we're working with? >> absolutely it is. we're in the range of $4 trillion over ten years with a at least double or triple the amount of spending cuts in relation to the amount of tax
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increases. but the only way you get a deal, both elements, entitlement cuts and tax increases. >> john harwood in washington, coming late to the microphone, but a great hit, as always. thanks so much. morgan stanley reporting better than expected adjusted earnings as it boosted revenue from trading bonds. shares right now, i believe, down 25 cents, they were higher earlier this morning. on the cnbc news line, brendan h hawkin at ubs. it's always difficult to wade into this. but for those who aren't financial savants, can you explain whether the quarter was good or not? >> yeah, i'd say overall, the quarter was pretty solid. once you x out the dva noise effectively within a penny of my estimate, we were above the street. but there was also some one-timers in there that we didn't have in our number. so once you back out some of these one-time charges in the merger and integration noise around buying in the jv at
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morgan stanley wealth management, you actually have better than expected results. and there were some reasons for optimism, really, in the earnings report. >> trading, revenue appears to be a bright spot. is that fair to say? and does that fit with the thesis that's being built as we work our way through these third quarter earnings? >> yeah. so fic was a bright spot for morgan stanley and it was particularly a bright spot once you add in, there's a little bit more noise on the earnings call. there's something called dva and also something called cva, it doesn't matter, those are movements based upon credit spreads. it's accounting mumbo jumbo, basically. add it back in get $1.7 billion, that's up from last quarter. so a very solid result and effectively showing that morgan stanley's institutional securities business is up off the mat.
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there was some concerns last quarter because of noise around the moody's downgrade. that's what i want when i said this quarter was particularly encouraging. it shows that the franchise at morgan stanley's intact and still able to punch with its weight. >> finally, some discussion about compensation at the firm, gorman has said he's going to keep the costs in line, that appears to be happening. would you argue they are, if not leading the charge, at least at the front end of that movement on the street? >> well, they're one of the firms on the street. so firms tend to be price setters. but he's certainly been very prominent in making the point. i think when you think about where a lot of the pressure comes, it's come from shareholders. and you've heard increasing dissatisfaction from shareholders about compensation levels and how they need to come down if the revenue environment's going to remain this challenging. and i think it's a very fair point, and i think that management firms across the
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street have heard it and that's why you're hearing not only at morgan stanley, at goldman sachs a couple of quarters ago when they said they were going to become a younger, aka, cheaper workforce. so, you know, we're -- it's not just at morgan stanley, we're seeing it everywhere. and i think that has helped ease the competitive pressure to pay up for some folks, which should in the end help shareholder returns. >> yeah. good for shareholders, maybe not good for bankers. >> yeah, you know -- that's the way it goes sometimes. >> yeah. brennan, thanks for coming to the phone. good to talk to you. >> good to talk to you. let's get a market flash from brian sullivan at hq. >> it's a big name, carl, abbott labs, abt. they were developing a late-stage chronic kidney disease treatment drug. well, they're going to discontinue that, there was a lot of optimism around abbott
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labs and this drug because, remember, around january 1st, abbott is spinning off the prescription drug business. well, this drug thought to be a major part of that, it is at least for now, no more. they are discontinuing the drug. a lot of pressure now on humera, abbott's biggest drug and a lot of pressure on abbott's stock. >> interesting, pharma in general was on a tare earlier in the week on good news. you live and die by some of these names. let's get to the cme this morning. rick santelli with the santelli exchange. going to help us wade through that china data overnight. good morning, rick. >> good morning, carl. and you gave it away, but that's okay. you know what? i wasn't going to say we were talking about china. i was going to say we were talking about company xyz. and the reason is because once you throw china in there or if you threw apple in there, or you threw intel or cisco, the interpretation really does change. think of that old boilerplate, past performance, no guarantee
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of future results. now, consider this. if we look at one year and we'll still call a company xyz. one year results minus 17% in terms of growth rate, two-year results, minus 25%, three-year results, minus 31%. and if you look at high to low, meaning in this range, the high growth rate analyzed versus the low, which, of course, is the most recent, that would be minus 37%. okay? now, you could put up that line chart and you could clearly see. i'm talking about china's annual growth rate as evidenced by gdp. and if you look at the high water mark, which was one quarter less than three years ago, that was 11.9%. if you look at the current rate, it's 7.4%, hence the numbers. but, if this was a company would you invest in it? how much would you put into this trend? what i like to call delta, the rate of change, and you could see, it's still highly negative.
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but when you put a name on it like china, all of a sudden what happens is the current rate, at 7.4 is like six times more than a lot of countries. it's still huge, you know, europe, the u.s. would beg for that. but that isn't the point. this is the point. these are the facts. this is what's subjected from global growth, at least based on china's portion therein. so it's got to make a difference. treat it objectively. carl, back to you. >> all right. sorry to steal your thunder, rick, but still great stuff. rick santelli. google firing another shot in the tech war sending out invitations to an android event sparking some rumors about a phone and a tablet. what implications does this have for apple, microsoft, and all the other tech players? coming up a little bit later, the chairman and ceo of vz, verizon joins us live to talk about earnings. the state of telecom and what's in store for the future. when "squawk on the street" comes back. tdd#: 1-800-345-2550 this morning, i'm going to trade in hong kong.
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investors watching microsoft and google earnings after the bell. a better indicator of both companies may come in new product launches planned for this month. google sending out invites for an android event on october 29th. microsoft also set today bu a new operating system and the surface tablet on the 26th. joining us this morning is the san francisco bureau chief for forbes and author of the forbes blog "tech trade."
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also the co-author of "ipad for dummies." good morning to both of you. ed, google says the playground is open. what is that supposed to mean? >> it means, i suspect it's a play on the google play store. you know, which is the store we can buy apps and music and so forth. i think it means a new tablet, a new phone, maybe, you know, who knows what. but certainly something android-related. and it's their answer to what apple's going to do next week and, of course, microsoft. >> eric, is this all about the low end of the tablet market? >> well, you know, there's speculation in both directions. there have been some stories suggesting that they're going to do a lower end tablet at a $99 price point, also speculation about tablets at the ere end, larger sized tablets more along the lines of the current apple ipad. so we'll see. they could go in both directions at the same time. >> what do you think is the right move? where should they go? >> well, i think they're going to try and be aggressive and compete in both ends of the
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market here. you know, we're seeing just an explosion of competition in both areas. apple obviously next week is going to go unveil the ipad mini and take on the nexus 7 and amazon's kindle fire hd at the low end of the market. but i think there's demand at both ends. microsoft is targeting the high end of the market which we'll see in a few days. you know, demand when you look at demand for tablets, the numbers are very impressive. people want tablets, they are replacing their pcs with tablets, pc sales are really weak. we saw this with intel's numbers this week. >> yeah, ed, what strikes me is that in the matter -- it seems like it's been a few weeks, but you all of a sudden have all these former frenemies really turning fire on each other. apple and google, walmart and amazon, apple and samsung and all over this new area that's
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gotten so competitive, so quickly. what does that all mean to you? >> well, as you say, you don't know who is an ally anymore. it's great for us, you know, we're very popular, we get a lot of invitations these days and you have to decide where you're going to go, right? it means this is a very, very hot market. certainly, i mean eric is right. pcs as we knew them are yesterday's news, tablets is where it's happening, smartphones is where it's happening and everybody wants a piece of that. apple, of course, is the big leader there and with the ipad that everybody wants to knock down on tablets. and as eric says, i think people are going to take different approaches, get it at the low end but also as microsoft is doing with surface, go at a higher price point and maybe, maybe get some of the people who are still thinking about tablet pc and that combination because the new operating system windows 8 is unified for tablets and pcs. >> as unfair of a question as it is, i'll start with you, ed.
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once we work our way through all these parties, right, and all these events, and once we get through whatever hp and those guys are planning for next year, what will the must-have item be? say once we get to next summer? >> boy, you know, certainly the ipad is going to continue to be the leader there, i think. but, you know, it's like what have you done for me lately? this week it's one device, next week it's another. i like the nexus 7 device that google came out with over the summer and then amazon comes out with the new kindle fire hd, that's a nice device. the point is, we're seeing, you know, leapfrogs as we go forward here. >> eric, how about you? >> well, i think there's two that i would really keep an eye on. i think the ipad mini is going to be a big success. i think that despite their additional reservations about attacking that end of the marketplace, that demand for a smaller-size device from apple is going to be really huge. and the other thing i would really keep a careful eye on is actually the microsoft surface,
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which, you know, some people are skeptical about microsoft's move into devices here. >> keep in mind that there's an opening for an enterprise class tablet that runs office, remember that windows version you'll get on the early tablets includes a version of microsoft office. and i think at the enterprise level, this is going to be a pretty popular device, may not happen right away. >> yeah. >> i think by next year, microsoft is going to be a bigger player here. >> interesting. you're echoing what a lot of microsoft bulls are saying, and that is it's a different system on a tablet than a regular click computer. you guys are great together. eric and ed, appreciate it. when we come back, starbucks under fire, avoiding paying almost $2 billion of taxes in the uk. a member of british parliament will tell us what he expects to find in the coming investigations. later on, the chairman and ceo of verizon will join us live for an exclusive interview. we'll talk about the quarter and
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back to "squawk on the street." rick santelli here. you know, tom burgen's expose on starbucks, using questionable loopholes, but not illegalties to maybe pay a smaller share of taxes than officials would like. we have nigel from the parliament in the uk. i would like to ask you, nigel, before i do, i want to make sure we give starbucks a chance to address this ongoing story. and when we put forth the question to respond to these allegations or at least these strategies, here's what they wrote back to us. the most important thing to understand is that starbucks does pay tax in the uk. indeed, over the last three years we have paid over 160 million pounds of various taxes including insurance contribution for 8,500 employees and business rates. now, hearing that, nigel, do you
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have any comment regarding the committee set up to investigate these tax procedures versus the comments by starbucks? >> well, starbucks is spinning it their way. of course they would, wouldn't they? there's a big point everyone's missing in this. i know it looks hypocritical and wrong for a company that always plays it out on the world stage, hey, we're the good guys and buy fair trade products and everything else. but here is the point that everybody is missing. and i think left-wing politicians are missing it. far from it being just illegal what starbucks is doing here in europe, they're encouraged to do it because what the european union has done and it's also involved three other states is they deliberately set up corporate tax structure that says you can buy and sell and make profits and trade in 29 countries, but you only have to pay tax in the country where you're brass plated. and this was a deliberate
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attempt. remember, politically what's going on over here is they're trying to create the united states of europe. what we now have is a big game of tax arbitrage that is going on in europe, so starbucks buy their coffee beans through a company in switzerland and pay their tax there. google, who do huge business in the uk pay corporation tax in ireland who have a very low competitive corporate tax rate. so, frankly, there's no point in having a committee inquiry, these are the rules that were set up by our lords and masters here in brussels. >> reporter: well, nigel, it's interesting because you picked up on why many like myself find this story fascinating. and it is because howard schultz is really about a company with a conscience. here's a quote from huffington post by ceo howard schultz. i think that more and more companies must recognize that success is best when it is shared and you have to achieve the balance between profitability and doing the
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right thing. you know, at this time, nigel, in u.s. politics, the tax issues, corporate tax issues, paying fair share is like top of the heap in one of the most contentious debates going on in washington. do you think howard schultz is disingenuous in his activity in the uk? what do you think about his social conscience versus what he's doing with tax policy? >> well, i think what mr. schultz ought to do is stop trying to have it both ways. you can't on the one hand say, we're the good guys, we're clean, we adopt a very, very good corporate social responsibility model and on the other do what the european union have encouraged you to do. make your mind up, mr. schultz. either be the good guy, pay uk taxes or stop selling the world this story. that you are, you know, such a wonderful man and go on making the biggest corporate profit you can. you can't do both. >> well, i'll tell you, nigel. in my opinion for what it's
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worth, i love starbucks coffee and i don't really care about all these other issues. i buy the coffee i like best. i don't open up any other frontiers to this, so it really isn't me, but it is a big story. and i guess the final question i'll ask you is, how intense is this? in other words, are we talking -- and they're not the only company, brought up google, mcdonald's, maybe to a lesser extent. how much money are you talking we could collect if these rules were changed in your opinion? >> well, if the rules were changed and the uk had a good, competitive tax structure that made it a very attractive destination, then we would be collecting many billion pounds more every year, which for a country the size of uk does matter. but for the moment, it's an irrelevant debate and i keep saying this to american audiences because, look, we are now impotent, westminster may look pretty, but it's got no power. all of those powers, all those decisions are now taken in brusse
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brussels, but i want to reverse that. >> nigel, thank you for being our guest. carl, back to you. >> thanks, rick. we'll see if we can get mr. schultz on the phone. going all digital next year, producing the final edition in december. how are you going to explain to your kids what a magazine was? tweet us @squawkstreet.
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europe closed about 2 1/2 minutes ago. simon hobbs to walk us through
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their session. >> it's a very mixed picture at the closes. you can see from the headline. what's fascinating today is the way in which during the session you have seen europe play itself out at so many different levels. the divisive nature of the politics, the fact that the european central bank is holding it together and the ceos are having to deal with the reality of where they are in the economy and particularly within tech. let me start off and show you the divisive nature of the politics in athens today. there were clashes again, a general strike, 40,000 protesters saying, look, further pension cuts, further wage cuts after five years of recession are simply too much. and as they attempted to storm the barricades of the parliament, there was, i believe, some violence there, as well. meanwhile, in the quiet of the lower house of parliament in berlin, angela merkel was driving forward with the austerity argument suggesting she wanted a europe in which in the future those that break the budget rules should have their budgets vetoed be the central commission. that ultimately puts her at odds
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now with the french as they go into that summit. and yes, they have started arriving in brussel now for the 27 heads of state meeting there. merkel at odds with the french with that particular issue on whether you should veto national governments. there's francois hollande. there you see the divisive nature of the politics playing out. what's interesting, we've spoken about where the markets are and what the expectations are of what the french, or more importantly the spanish will do going into this. what is interesting if you look at a chart so far this year of where we are on the stocks versus the euro, you'll see actually that the white line here, the movement on the stocks is often the lead indicator for the movement on the euro. as things stand at the moment, we're actually sitting on the euro at a three-week high and the stock market at -- it's not working at all now. and a one-month high. sorry, around the wrong way. importantly, though, the central
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banks continue to hold everything together. that threat from the ecb to intervene have pushed down those spanish yields again lower today, and today the spanish were able to off load even more debt, 4.6 billion euros slightly above expectation. they almost now got rid of all the debt. rather they've borrowed all the money they have to almost for the entire year. that's the window of opportunity that the ecb has given the spanish, the french also had a relatively good auction today. so there you see the central bank holding things together finally the ceos having to do what they can in the midst in particular of the troubles within technology. let me just show you nokia today had a real wild ride. both the new york stock exchange, but over in helsinki announced their losses will be less than expected. but still cutting really heavily at nokia, 20,000 jobs as they deal with the competition from apple, trying to stem the stock market losses, unable to do it in that case. we thought they achieved it
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earlier in the session. alcatel loosened, they too were trying to stem the losses in that business or at least put it on a better footing. they've announced 5,500 job losses worldwide. that has brought their stock up higher 7% on the session overall. but still a stock that's been slammed, so many, carl, have in tech when they get it wrong. >> talk about a name from the past. thanks, simon hobbs. bob pisani is on the floor today, a look at what's moving. no the the broad indices. >> yeah, the good news is we're standing right near our 4 1/2 year highs. the bad news is, we're standing right near our 4 1/2 year highs. we've been standing here for five or six weeks. 1,465, we're having troubles breaking through from that. i guess moving sideways is pretty good right now considering we have to resolve what i call the two big trough issues. number one, are we at a trough
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for china's gdp on the fourth quarter? fairly encouraging it is. but still out, and u.s. earnings, is that going to be the trough. the fiscal cliff showing up on a lot of stock market commentary as a potential issue. i think this will be resolved but clear risk around this right now. let me show you what we're doing right now today. on either side, when you get the major sectors at .3%, .4%, either side positive or negative, that's a fairly flat day. more important is where the trend is for earnings. let me show you the third quarter and the sectors. everybody's been saying oh it's going to be negative. so far we've turned positive. financials are the ones that have been reporting and their numbers have been rising, it has not been going down, generally beating the numbers, consumer discretionary is flat. the naysayers are saying wait until the material companies start reporting. they're going to report lousy numbers. we know this, and there it is reflected in the analyst commentary. my point is the street has
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already dramatically taken down numbers and there are low expectations, carl, for the quarter. just like there were low expectations for financials. and financials come in and had beaten those numbers. i think you'll find that may, in fact, happen with some of the other sectors, as well. >> thanks so much, bob. see you later. when we come back, our exclusive interview of the chairman and ceo of verizon after this break with david faber. don't go away. if we want to improve our schools... ... what should we invest in?
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coming up at the top of the hour, at the half, an exclusive interview with vanguard's gus sauter. plus, will google's earnings continue to fuel its rally? and one of it will world's most powerful ad men talks facebook, amazon, and how best to monetize mobile. >> sounds good, scott, thanks. faber's back with an exclusive interview. >> thanks a lot. we are here to talk verizon, verizon communications posting earnings early this morning, net income up 15% in the third quarter, about $1.6 billion, profit margins in the wireless business reached a record, 50%. happen to be joined by the chairman and ceo of verizon in an exclusive interview. very nice to see you, glad you could join us. >> hi, david, good to see you.
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>> before we get to today's earnings, i would love to get your take on a very significant development in your industry, i'm talking about soft bank's decision to take control of sprint. a deal announced this week. do you believe sprint will become a more viable competitor to verizon as a result of the acquisition? >> well, i think you're seeing two things here, which are really testaments to how strong the u.s. industry is here. with deutsche telecom and metro pcs and now soft bank taking over sprint, i think that's a very strong testament on how they're investing in this market. so, and i think, david, we've talked for a long time about how we ought to have more consolidation. seven or eight really not strong competitors is not good for anybody in the eco system. so if we can get to four that are healthy, i think we're much better off as an industry. now, you know, i know him quite
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well. a very enjoyable guy to be around and i think he'll bring innovative things to the marketplace that will have challenges ahead of him. and if you take a look at how we've invested about $80 billion in our wireless networks since we started. so, you know, an $8 billion infusion is a very good thing for sprint. but we're going to continue to move forward. so we like the challenge. >> yeah. when he talks about, hey, americans don't really know what high speed is or fast speed is, when he talks about, do you take -- >> well, i can assure you he's not on the verizon network and he knows how to get in touch with me. i'll be happy to import your number on to verizon and you'll be able to experience those high speeds. >> it's funny, consolidation as you pointed out has taken place, although maybe we're at the end. there is some talk down the road, lowell, this combination of sprint and soft bank, if you will, would still want to acquire the combination of
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t-mobile and pcs. is that a deal you think could get done on the regulatory front? or are we done with consolidation? >> well, i think about these more from operational issues than i do from regulatory perspective. that would have quite a mix of spectrum and different technologies. so i think, you know, my view is you do these things one step at a time and let the two of them do their consolidation and get their operations started and then see where it goes. but i -- you know, that wouldn't be an obvious thing from my perspective. >> all right. i want to get to your earnings this morning. i want to get to something that was on the call. of course, always a lot of interest in iphone activations, wireless very strong with 1.5 million additions. but there was some comments on the conference call, iphone activations, 3.1 million during the quarter. but you intimated there was supply constraints on the iphone 5. is that the case? and will it still be the case for the fourth quarter? >> well, you probably ought to
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ask tim that question. we had about 650,000 give or take from the iphone 5s, an awful lot of 4s and 4s's. we're up above 30% of those sales are new to verizon. i think, david, the thing that i stress with my team that i feel good about, we're about 50% android and 50% iphone. so we got a great portfolio of the motorola devices the samsung devices as well as the apple devices and the tablets that go with those. so, you know, i feel really good about the position we are in our device portfolio. >> right. and as well you should. but again, to this fourth quarter issue, if they can't deliver for the holiday season, that could cause some hiccups, couldn't it? >> no, i don't think so. because we've got these other devices. the galaxy s3 has been a big
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one. microsoft is going to be launching their windows 8 phone which that new tile technology has been well received. so the thing that we've always prided ourselves on is not being a one-device company. and i think you see that in our growth and our profitability during the third quarter and i expect that to carry over into fourth. >> yeah, no doubt. of course, it's funny, though, we talk about a two-device world. android/iphone. are we done, lowell, thinking that rimm will be a viable competitor? nokia out with earnings this morning. are those the names simply not going to be a part of the customer experience any longer? >> well, you know, you gave me the opening, and you know me well enough, i'm not going to say we're a two-device -- we talk about 400 and 500% penetration, and i'm thinking about devices like thermostats and your cars integrated and all of your appliances and your home security system. so i think about devices and
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that sort of framework. but, look, we have seen companies sort of rise and fall in the past and i don't count rimm out. i don't count nokia out, i think microsoft's viable, and samsung has a lot of capabilities and they could go out on their own and create an eco system if they wanted to. and i know they've thought about it. so, we'll see. markets like this, similar to your comments on carriers, markets like this like to have more than two choices and someone will step up and fill that void i'm sure. >> well, of course, it's at the end of the day, it's up to the consumer, as well. >> that's right. >> i did want to come to the wire line business, specifically you guys did a union deal. i don't believe it's been ratified as of yet. but, you know -- >> right. >> some people were concerned about margins on the wire line business and there seems to be an expectation that with this union deal you're going to see improved margins and improvement, as well, at fios, both of which there's a little bit of concern about. is that a fair expectation, lowell?
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>> well, the union contract was really important for us. what we wanted to do was to make sure the company was viable and be able to give secure jobs to our employees, but we needed changes in the work rules which were very important and as you mentioned some of the pension and benefit changes. and i think we've got a very good balance here. now, these things usually take about 30 days to get ratified. we expect that will occur, you know, in the next several days here. we feel pretty optimistic based on what we've heard so far. and then, i think you'll see that begin to come to the bottom line. you know, we don't start doing our enrollments on medical and those sorts of things until in the fourth quarter, so there won't be much fourth quarter impact. but as we get into 2013, both the benefits and the work rules begin to help us take better care of our customers and be a bit more efficient as a business. >> and finally, you know, you do have a pretty good view on the overall economy given enterprise and consumer. give me your take.
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where are we in the u.s. economy right now? >> well, you know, my views probably aren't a lot different than a lot of the ceos that you bring on to the show. you know, everybody's hesitating. you see that especially in our enterprise solutions group. so we've got issues with what's going on in europe because we've got a strong business there. and in the u.s., everybody's kind of waiting to see until after the election and what happens on the tax rates on what kinds of investments they should be making. so we're obviously hopeful that no matter what party gets into the white house that we are able to deal with this quickly and move past this fiscal cliff before it really has another negative impact to the economy. >> yeah, lowell, as always, appreciate your time. thanks for joining us. >> great to talk to you, thanks. >> lowell mcadam, carl? >> great insight. if you are confused by the lyrics in rap songs, you are not alone. rapgenius is translating lyrics
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from all walks of the genre. why the vc world is buzzing about rapgenius in just a moment. [ male announcer ] at scottrade, we believe the more you know, the better you trade. so we have ongoing webinars and interactive learning, plus, in-branch seminars at over 500 locations, where our dedicated support teams help you know more so your money can do more. [ rodger ] at scottrade, seven dollar trades are just the start. our teams have the information you want when you need it. it's another reason more investors are saying... [i'm with scottrad.
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this is mary thompson. we have some additional news here, some breaking news from goldman sachs here. basically some more details about their internal review that they conducted in the wake of an op-ed written by a former
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employee greg smith. saying it was no longer client-focused. and indeed, a number of the workers at the firm were very disparaging of clients calling them among other things muppets. these coming from goldman sachs, this is what the internal review found. they looked at literally millions of e-mails and 97.1% of those references to muppets they said were references to the movie. certainly not to clients. in addition, keep in mind that goldman has a rather strict review policy. their employees give each other what they call 360-degree reviews where other employees review them, managers review them, et cetera. well, smith himself reviewed 13 colleagues over three years and gave them the highest marks possible for culture, leadership as well as client effectiveness. in addition, smith himself was reviewed and his colleagues tended to score him in the bottom half of other colleagues from 2007 on. nevertheless, he did see himself
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as better half, one of his managers calling that unrealistic. we tried to make contact with mr. smith, but he's not making any comments about this until his book comes out on monday. we'll hear more about that, carl, back to you. >> a lot more, mary, thank you very much for bringing us that. when we come back, it's like a decoder ring for the internet, vc firm calls it one of the most important things we've ever funded. we're going to find out how free ivy league alums are making songs like this comprehensible.
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when you take a closer look... the best schools in the world... see they all have something very interesting in common. they have teachers... ...with a deeper knowledge of their subjects. as a result, their students achieve at a higher level. let's develop more stars in education. let's invest in our teachers... they can inspire our students. let's solve this. not quite knowing what the next phase was going to be, you know, because you been, you know, this is what you had been doing. you know, working, working, working, working, working, working. and now you're talking about, well you know, i won't be, and i get the chance to spend more time with my wife and my kids. it's my world. that's my world. ♪
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i was downstairs making coffee, and we heard it. it just came crashing through the roof, out of nowhere. what is it? it's our ira. any idea what coulda caused this? maybe. i just sorta threw a little money here, a little money there. and i loaded up on something my dentist told me was hot. yeah. ♪
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today, rap genius is helping you understand what your favorite pop songs mean. but they believe it's just the beginning for rapgenius and invested $15 million in the company earlier this month. rapgenius could one day decode the entire internet they say. joining us here, co-founders of rapgenius. guys, welcome. great to have you on the program. >> thanks so much. great to be here. >> for those who don't know, you created the firm in 2009, came from all sorts of backgrounds. the site's mission is what?
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>> well, it started just to explain the meaning of rap lyrics and it's kind of evolved into a lot of other things. now we like to think of it as the internet layer of meaning across the internet. you'll see stuff like the mayflower compact or the magna carter. started with rap lyrics. >> the idea was, what? you would enter a rap lyric or listen to a piece of a rap song and you would try to figure out what dr. dre was telling you? >> yeah, we found on the site based on a conversation we were having in our apartment that i'm sure people are having in apartments across new york city and around the world. what's going on on that line? and listening to it a couple of times and trying to figure out the illusions and so forth. that inspired the site, and now we're taking it to all of text. >> you wrote a blog about his investment on november 3rd. your first reaction might be that horowitz guy has completely lost his mind.
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what does he see in this site in the future of the site? >> ben is just the godfather of rapgenius. i think he sees the three of us, we just hang with him and i think he's feeling the love. once he saw the site for the first time, he just started using it, and you can see him when he's on, you can see him in editor chat. i think he got addicted to the site and convinced mark to invest a bunch of money in it. >> mark also writes back in '93, they were building mosaic at the time. he goes, it seemed obvious to us that users would want to annotate all text, everything on the web. but at the time, they didn't have the resources to properly build out that server. is that moment here already? >> absolutely, absolutely. finally from a technology standpoint we're there. it's not going to be as expensive as it was back then. back then 50 megabyte hard drive was everyone's wildest dreams, now it's just whatever. so that's one part of it. but also the community. now we finally have the ground swell of community power and energy that's going to be able
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to drive this and be the biggest site in the world. >> best rap lyric and best rap lyric explanation. >> i like the line that lil wayne says which says i'm a big smoker, i'm a little drinker, my peace sign is a trigger and a middle finger. >> squawked it out. >> thank you so much. >> thank you so much. >> does it for us here on "squawk on the street." let's get back to headquarters wapner and the "fast money halftime." hi, carl, thanks so much. hard to follow that, we'll try. take a look at where we stand with four hours to go until the close. higher jobless claims, as well. here's where we stand, 21 points to the upside for the dow, nasdaq is slightly in the red today by .1% or so. bull market, the big call from one of the biggest money managers on the street. we've got an


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